ExpertMedium2 marksMultiple Choice
ACCA · Question 28 · E. Standard costing
A mining company uses standard absorption costing. The standard profit per ton of coal is $15, and the standard fixed overhead absorption rate is $5 per ton.
The company budgeted to sell 50,000 tons but actually sold 48,000 tons.
What is the sales volume profit variance?
A mining company uses standard absorption costing. The standard profit per ton of coal is $15, and the standard fixed overhead absorption rate is $5 per ton.
The company budgeted to sell 50,000 tons but actually sold 48,000 tons.
What is the sales volume profit variance?
Answer options:
A.
$10,000 Adverse
B.
$30,000 Adverse
C.
$40,000 Adverse
D.
$30,000 Favorable
How to approach this question
Under absorption costing, the sales volume variance is the difference in units (Budgeted vs Actual) multiplied by the Standard Profit per unit.
Full Answer
B.$30,000 Adverse✓ Correct
Sales Volume Profit Variance = (Budgeted Sales Volume - Actual Sales Volume) * Standard Profit per unit.
Shortfall in sales = 50,000 - 48,000 = 2,000 tons.
Variance = 2,000 tons * $15/ton = $30,000 Adverse (since actual sales were lower than budgeted).
Common mistakes
Valuing the variance at standard contribution ($20) which is used in marginal costing, or valuing it at the fixed overhead rate ($5).
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